• Ford Sales Rise 13%
    Posted by on June 1st, 2012 at 1:43 pm

    While the market is melting down today, Ford ($F) continues to turn out impressive results.

    Ford Motor Co. says its U.S. sales rose 13 percent in May on strong demand for its F-Series pickups and SUVs.

    F-Series sales rose 29 percent over last May. Ford says demand for trucks has followed an increase in new home construction since the start of this year.

    Sales of the Transit Connect commercial van were also up 53 percent over last year. Sales of the Edge crossover rose 24 percent.

    Car sales saw smaller gains. Sales of the Focus small car were up 11 percent.

    One bright spot in Ford’s car lineup was the Mustang, which saw a 58-percent increase as the summer driving season begins.

    Ford is currently under $10.20. Wall Street expects them to earn $1.49 this year and $1.73 next year.

  • CWS Market Review – June 1, 2012
    Posted by on June 1st, 2012 at 9:18 am

    This morning, the government reported that the U.S. economy created just 69,000 jobs in May. This was well below expectations, and last month’s numbers were revised downward as well. The national employment rate ticked up from 8.1% to 8.2%. That’s just lousy, and it’s yet more data in a run of below-average economic news.

    Before anyone gets too worked up over the jobs numbers, let me remind you that these are very imprecise estimates. The media breathlessly reports these figures as if they were handed down from Mount Sinai, but as Jeff Miller notes, the margin of error for these reports is exceedingly wide. The numbers are also subject to large revisions in the coming months.

    Still, we have to adjust ourselves to the reality that the economy isn’t doing as well as most folks believed a few weeks ago. The jobs gains simply aren’t there. The other negative economic news this week included a sharp drop in consumer confidence, a rise in first-time claims for unemployment insurance and a negative revision to first-quarter GDP. The last one is old news since we’re already into the back-end of the second quarter.

    Treasury Yields Hit an All-Time Low

    I can’t say that I find the sluggish economic news surprising. In the CWS Market Review from two weeks ago, I wrote that economically sensitive cyclical stocks had been badly lagging the market. This is an important lesson for investors because by following the relative strength of different market sectors, we can almost see coded messages the market is sending us. In this case, investors were bailing out of cyclical stocks while the overall market wasn’t harmed nearly as much. Now we see why.

    Since February 3rd, the S&P 500 is down by 2.6%, but the Morgan Stanley Cyclical Index (^CYC) is off by more than 11%. Looking at the numbers more closely, we can see that the Energy and Materials sectors have been sustaining the most damage. ExxonMobil ($XOM), for example, lost over $30 billion in market cap in May. The price for oil slid 17% for the month thanks to weak demand from Europe. Interestingly, the Industrials had been getting pummeled, but they’ve started to stabilize a bit in the past few weeks.

    Tied to the downturn in cyclical stocks is the amazing strength of Treasury bonds. On Thursday, the yield on the 10-year Treasury bond got as low as 1.54% which is the lowest yield in the history of the United States. The previous low came in November 1945, and that’s when the government worked to keep interest rates artificially low. A little over one year ago, the 10-year yield was over 3.5%. Some analysts are now saying the yield could soon fall under 1%.

    Don’t blame the Federal Reserve for the current plunge in yields. While the Fed is currently engaged in its Operation Twist where it sells short-term notes and buys long-term bonds, that program is far too small to have such a large impact on Treasury rates. The current Treasury rally is due to concerns about our economy and the desire from investors in Europe to find a safe haven for their cash. I strongly urge investors to stay away from U.S. Treasuries. There’s simply no reward for you there. Consider that the real return is negative for TIPs that come due 15 years from now. Meanwhile, the S&P 500 is going for 11 times next year’s earnings estimate. That translates to an earnings yield of 9%.

    The latest swing in opinion seems to believe that Greece will give staying in the euro another shot. It’s hard to say what will happen since we have new elections in two weeks. Still, I think the country will at least try to keep the euro. The reason is that Greece’s economy is very small compared to the rest of Europe. If it leaves the euro, the headaches involved will be too much to bother with.

    The real issue confronting Europe is Spain’s trouble which can’t so easily be swept under the rug. Their banking system is a mess. Think of us as reliving 2008 with Greece being Lehman Brothers and Spain being AIG. The major difference with this analogy is that Europe may not be able to bail out Spain even if it wanted to. So far, the Spanish government is putting up a brave front and is strongly resisting any form of a bailout. The politicians there obviously see how well that played out with public opinion in Greece.

    In Germany, the two-year yield just turned negative (ours is still positive by 27 basis points). While much of Europe is in recession (unemployment in the eurozone is currently 11%), and China’s juggernaut is slowing down (this year may be the slowest growth rate since 1999), there’s still little evidence that the U.S. economy is close to receding. We’re just growing very, very slowly.

    The stock market performed terribly in May. The Dow only rose five times for the month which is the fewest up days in a month since January 1968. The S&P 500 had its worst month since last April. But we need to remember that the U.S. dollar was very strong last month. It’s probably more correct to say that the dollar is less weak than everybody else, but that still translates to high prices for dollars. So in terms of other currencies, the U.S. equity market didn’t do so poorly.

    Jos. A. Bank Clothiers Disappoints

    We had one Buy List earnings report this past week: Jos. A. Bank Clothiers ($JOSB). The company had already told us that the quarter was running slow, so that muted my expectations. For their fiscal Q1, Joey Bank earned 53 cents per share which missed Wall Street’s consensus by nine cents per share. Quarterly revenue rose by 4.2% to $208.91 million. But the important metric to watch is comparable stores sales, and that fell by 1%. That’s not good.

    Shares of JOSB dropped on Wednesday and stabilized some on Thursday. I’m not happy with how this company is performing and it’s near the top of my list for names to purge from the Buy List for next year. Still, I won’t act rashly. The company has said that this quarter is off to a good start: “So far the second quarter has started out much better than the first quarter. For May, both our comparable store sales and Direct Marketing sales are up compared to the same period last year, continuing the positive trend established in the last five weeks of the first quarter. However, Father’s Day, the most important selling period of the quarter, is still ahead of us.” I’m lowering my buy price from $52 to $48 per share.

    Shares of Bed Bath & Beyond ($BBBY) broke out to a new all-time high this past week. On Tuesday, the stock got as high as $74.67. It’s our #1 performer for year and is up nearly 25% YTD. The stock is an excellent buy below $75 per share, but I won’t move the buy price until I see the next earnings report which is due out on June 20th.

    Two other Buy List stocks I like right now are Ford ($F) and Oracle ($ORCL). Ford has been doing so well that it’s actually having a hard time keeping up with demand. I’m expecting a strong earnings report from Oracle later this month. The May quarter, which is their fiscal fourth, is traditionally their strong quarter. Oracle is an excellent buy under $30 per share.

    Before I go, let me say a quick word about Facebook ($FB). In last week’s CWS Market Review, I told you to stay away from the stock, and I was right as the shares have continued to fall. The stock got as low as $26.83 on Thursday. I don’t think Facebook is an attractive stock to own until it reaches $17 to $20 per share. Until then, keep your distance!

    That’s all for now. Be sure to keep checking the blog for daily updates. I’ll have more market analysis for you in the next issue of CWS Market Review!

    – Eddy

  • Morning News: June 1, 2012
    Posted by on June 1st, 2012 at 7:36 am

    Euro-Area Unemployment Reaches Record 11%, Led by Spain

    A Terse Warning for Euro States: Do Something Now

    Merkel’s Isolation Deepens as Draghi Criticizes Strategy

    Formula One May Delay $3 Billion I.P.O. in Singapore

    China Manufacturing Slows Sharply, Data Show

    Macau Gambling Revenue Rose 7% in May

    Emerging Stocks Extend Monthly Rout on Asia

    U.S. and European Union Agree on Air Cargo Security

    BP Russian Partners Say They Made Offer for BP’s TNK Stake

    Liberty Tells Regulators It Wants Control of Sirius

    Wal-Mart Joins Companies Cutting Ties With ’Free-Market’ Group

    After Facebook, Silicon Valley Warily Eyes Square

    Student Debt Rises by 8% as College Tuitions Climb

    Jeff Miller: May Employment Preview

    Epicurean Dealmaker: As Long as the Right People Get Shot

    Be sure to follow me on Twitter.

  • The $2.3 Trillion Gap
    Posted by on May 31st, 2012 at 11:06 am

    Here’s an unusual chart, but I think it explains a lot. This is real GDP divided by a trendline growing at 3.1%. So when the line is rising, the economy is growing faster than 3.1%. Conversely, when the line is dropping, the economy is growing by less than 3.1%.

    For a 40-year stretch, from 1966 to 2006, the economy grew at a 3.1% annualized pace and it didn’t stray too far from that trend. The 1981-82 recession was severe, but the Reagan Recovery brought us back into trend.

    The Great Recession, however, is a dramatic departure from the 40-year trend. That’s the key point I think the chart highlights. In the last six years, the economy has exceeded 3.1% growth in just four quarters. If the economy had kept pace with the 3.1% trend, it would be $2.3 trillion larger today in nominal terms.

  • Q1 GDP Revised Down
    Posted by on May 31st, 2012 at 9:44 am

    The government revised its estimate for first-quarter GDP growth this morning and it was bad news. Instead of growing by 2.2% as was initially reported one month ago, the government now says that the economy grew by just 1.9% for the first three months of the year.

    This means that the economy is barely above its peak from late 2007. Over the last 17 quarters, the U.S. economy has grown by just 1.24% in real terms.

    The report also showed that after-tax corporate profits dropped for the first time in three years.

    A modest downward revision to consumer spending, which accounts for about 70 percent of economic activity, and stronger import growth also accounted for the weaker first-quarter output. Economists polled by Reuters had expected growth would be revised down to a 1.9 percent pace.

    Business inventories increased $57.7 billion, instead of $69.5 billion, adding only 0.21 percentage point to G.D.P. growth, compared with 0.59 percentage point in the previous estimate.

    While the small inventory buildup held back growth in the January-March quarter, restocking of shelves, retreating gasoline prices and an improving housing market should bolster output in the second quarter.

    I’m not sure why this is, but looking at the rolling six-quarter growth of the economy gives you the clearest appearance of a trend. The six-quarter growth rate has now trended downward for five quarters in a row.

    Before the Great Recession, economists spoke of the Great Moderation. This refers to the fact that the booms and busts of the economy from 1982 to 2007 were much smaller than what we saw before.

    But the moderation may still be with us, just at a lower level. The standard deviation of quarterly GDP growth for the last seven quarters is among the lowest ever recorded.

  • Morning News: May 31, 2012
    Posted by on May 31st, 2012 at 7:27 am

    Bankia Vortex Risks Dragging Spain to Bailout as Costs Mount

    An ECB Rate Cut: A Matter of When Not If

    Swiss Economic Growth Quickens

    Polish Economic Growth Slowed as Euro Turmoil Hurts Exports

    India Growth Slows to Nine-Year Low as Rupee Drops to Record

    Japan Industrial Output Gains Slow, Stirring Recovery Doubts

    Malaysia Launches $3 Billion IPO with Eye on Poll

    Gold Advances in London as Weaker Dollar Bolsters Demand

    U.S. Steps Up Pressure on Europe to Resolve Euro Crisis

    Microsoft Recruits Designers in Race for Windows Apps

    RIM Shares Trade Lower After CEO’s Warning

    JPMorgan CIO Swaps Pricing Said to Differ From Bank

    Prudential US Acquisition

    Lions Gate Records Surprise Loss on Summit, ‘Hunger Games’ Costs

    Jeff Carter: Repurposing Public Spaces For the Knowledge Economy

    Edward Harrison: What Record Low 10-Year Rates Tell Us About The Toxic Effects Of Permanent Zero

    Be sure to follow me on Twitter.

  • 10-Year Yield Hits New Low
    Posted by on May 30th, 2012 at 10:33 am

    The yield on the 10-year Treasury fell to 1.65% today which is another multi-decade low.

    The 10-year TIPs yield is now down to -0.4%. In February 2011, the TIPs yield was +1.4%.

  • Joey Bank Bombs
    Posted by on May 30th, 2012 at 9:51 am

    Jos. A. Bank Clothiers ($JOSB) just reported horrible earnings for its first quarter. The company earned 53 cents per share which was nine cents worse than expectations. To be fair, the company had told us that this quarter looked weak but we didn’t know exactly how weak until now. Quarterly revenue rose 4.2% to $208.91 million, although comparable stores sales dropped by 1%.

    The stock is getting nicked this morning but this is cause for optimism. JOSB has said that this quarter is off to a good start: “So far the second quarter has started out much better than the first quarter. For May, both our comparable store sales and Direct Marketing sales are up compared to the same period last year, continuing the positive trend established in the last five weeks of the first quarter. However, Father’s Day, the most important selling period of the quarter, is still ahead of us.”

  • Morning News: May 30, 2012
    Posted by on May 30th, 2012 at 7:28 am

    Euro-Area Economic Confidence Falls to 2 1/2 Year Low

    Euro Bonds With Strings Are Europe’s Best Way Forward

    Greek Exit From Euro Seen Exposing Deposit-Guaranty Flaws

    Worries About Spain Weigh on Euro Zone

    ECB Rate Cut Hopes Push Euribor To 2-Yr Lows

    India’s Economy Slows, With Global Implications

    Young and Global Need Not Apply in Japan

    Global Carbon Market Value Hits Record $176 Billion

    Challenges Mount for Chinese Makers of Electric Cars

    Dragon Oil Awarded Iraqi Exploration Block

    A Facebook Phone: Ambitious Leap or Fatal Mistake?

    Dunkin’ Brands Looks to Emerging Markets

    Allstate Leads Insurers to Best Start Since 2003 on Storm Costs

    Visa Beats JPMorgan as Cards Wage War on Cash: Riskless Return

    Roger Nusbaum: A Not So Lazy Portfolio

    Pragmatic Capitalism: Housing Recovery: Hope and Reality

    Be sure to follow me on Twitter.

  • Home Prices Cheapest in 10 Years
    Posted by on May 29th, 2012 at 9:47 am

    This morning’s Case-Shiller reports that U.S. home prices are the cheapest they’ve been since mid-2002.

    Home prices hit new post-bubble lows in March, according to a report out Tuesday.

    Average home prices were down 2.6% from 12 months earlier, according to the S&P/Case-Shiller home price index of 20 major markets. Home prices have not been this low since mid-2002.

    “While there has been improvement in some regions, housing prices have not turned,” said David Blitzer, spokesman for S&P.

    Although five cities – Atlanta, Chicago, Las Vegas, New York and Portland – saw average home prices hit new lows, that’s an improvement from last month’s report, in which nine cities notched new lows, Blitzer noted.

    Overall, the 20-city composite is down about 35% from its peak in 2006.

    Experts say affordable mortgages, combined with much lower home prices, should help to bolster the housing market.

    “It’s probably the best time to buy a home in decades,” said Pat Newport, an analyst for IHS Global Insight.

    “But the problem is that unless you have good credit, you are probably going to have trouble qualifying for a loan,” he added referring to overly tight lending conditions.